This is why bitcoin will never, ever replace gold

Market bubbles are often based on “new paradigm” thinking – like a new concept or

technology that’s considered revolutionary and with unlimited profit potential. But as prices keep rising, and paper fortunes are made, the mania takes on a life of its own. Business realities are forgotten, and getting rich on soaring prices is all that matters. Before long, the mania subsides, and prices fall – often dramatically.

The price surge of cryptocurrency bitcoin from US$215 last summer to a high of US$763 earlier this summer is an example of this kind of new paradigm thought. Bitcoin fans envision unlimited use of the digital currency, and unlimited profits for investors. They view it as the “gold of the digital era” – a safe haven for people to park their cash when the financial world is in turmoil.

(Bitcoin is digital money that is created and held electronically. At the core of bitcoin technology is a kind of super database called the “blockchain.” The blockchain is public and accessible to anyone, just like the internet. It allows anyone with internet access to make a financial transaction without the need for a middleman, like a bank.)

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